The Reason Markets Crashed

The action of the last 14 months proves that what happens on Pennsylvania Avenue has far more effect on your wealth than what happens on Main Street or even on Wall Street.

Like it or not, the government now controls your wealth.

Last week’s big plunge has just one cause… rising interest rates.

Investors fear that, after more than a decade of thriving on dirt-cheap money, corporate America can’t keep its pace if forced to pay the fair price for its debt.

They fear that the stock buybacks… the big dividend payouts… and the debt-fueled growth will soon come to a halt.

And they fear that if bond rates rise, investors will flee stocks and head to fixed income investments where their money will be treated best.

But here’s the scariest part… Washington has found itself in a trap.

No Place to Go

Although lots of folks pointed a finger at the Federal Reserve last week, it’s a fiscally inept Congress that must take the blame for the latest surge in rates. Its decision to borrow a million dollars a minute for the next two years (and certainly longer) spooked the bond market.

Just weeks after slashing taxes and reducing the government’s revenue, the oh-so-smart folks on Capitol Hill decided to boost spending by a whopping $300 billion over the next two years.

The news has the citizens who are financing Uncle Sam’s debt wondering if the old man will be good for it…

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They’re demanding a better bang for their borrowed buck.

Take, for instance, the $24 billion worth of 10-year notes the Treasury Department auctioned off last week. Demand was, at best, lukewarm. And with fewer folks bidding up prices, rates were forced to rise.

In this case, they jumped to 2.81%.

Feeding the Addiction

Investors know there’s no need for folks to fight over America’s debt. There’s plenty more to come… especially with these dopes in Congress.

It seems like both sides are eager to open the spending spigot and virtually guarantee they get to rule over a future crisis.

The only guy fighting back is Rand Paul. He annoyed his colleagues on Thursday night with a harsh dose of reality.

“When the Democrats are in power, Republicans appear to be the conservative party,” he said to his fellow representatives. “But when Republicans are in power, it seems there is no conservative party. The hypocrisy hangs in the air and chokes anyone with a sense of decency or intellectual honesty.”

Amen.

The leading Democrat in the Senate proved his point…

“What makes Democrats proudest of this bill is that after a decade of cuts to programs that help the middle class, we have a dramatic reversal,” said Chuck Schumer.

“Funding for education, infrastructure, fighting drug abuse, and medical research will all, for the first time in years, get very significant increases, and we have placed Washington on a path to deliver more help to the middle class in the future.”

Yeah, they put Washington on a path alright… a path that virtually ensures the nation’s middle class will soon depend on the government to survive.

It’s sad.

Just as the Federal Reserve is working to boost interest rates and end an era where the markets rely on monetary policy for survival… Congress is flooding the market with debt thanks to massive fiscal stimulus.

It means interest rates may soon climb too high, too fast.

It’s not good news for our beloved bull.

More than ever before, your wealth is in the hands of the folks in Washington.